Friday, April 4, 2014

TowerPoint Capital: Rising Inflation Poses Risk to Tower Lease Value

Jesse Wellner is a Principal and Managing Director at TowerPoint Capital, which is a leading institutional investor in cell site ground leases nationwide. There are a few factors that some believe may cause inflation for cell tower ground leases such as, the Federal Reserve’s sustained policy of providing monetary stimulus coupled with the slow economic growth we’ve been seeing.  “Elevated inflation levels,” Wellner says, “would greatly diminish the value of long term cellular ground leases. Generally, cell tower leases provide for rent escalations designed to keep pace with normal inflation. However, a hyper inflationary environment quickly outstrips these increases, particularly in leases with annual escalations below 4% or 5%. This dynamic results in a significantly diminished present day value of the lease as the future rental stream lacks the necessary growth over time.” It’s not certain that this trend of depreciation will continue but Wellner believes that, “”Right now, interest rates are at record lows and core inflation has been relatively nominal. This means cell tower ground leases are essentially at or in very close proximity to peak value. The good news for cell site owners is that you could still monetize your lease today and be confident your market timing is pretty near perfect. Those who choose to hold out for more money risk winding up on the wrong side of inflation with a significantly less valuable lease and increasingly stagnant monthly payments. As it relates to cell site leases, property owners have a choice not to fall victim to inflation and find a more defensive position for their capital.”

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